European electricity consumers will save some €100bn on their energy bills due to the rapid expansion of renewable energy sources caused by the Russian induced energy crisis, the International Energy Agency (IEA) said in a report.

It is estimated that from 2021 to 2023, the installation of new solar photovoltaic (PV) and wind capacity will result in savings of around €100bn.

The addition of low-cost wind and solar installations has displaced approximately 230 TWh of expensive fossil fuel generation since Russia's invasion of Ukraine, consequently reducing wholesale electricity prices across all European markets. Without these capacity additions, the average wholesale electricity price in the European Union would have been 8% higher in 2022, the IEA concluded.

The decrease in Russian natural gas deliveries to the European Union following the invasion of Ukraine resulted in an 80% decline in pipeline deliveries from 2021 to 2022. This decline coincided with reduced hydro and nuclear power output in Europe. As a result, the prices of natural gas and hard coal shot up, with the average monthly natural gas price surging ten-fold and the price of hard coal quintupling between January 2021 and August 2022. These price hikes led to unprecedented levels of power generation costs from natural gas, reaching nearly €800/MWh for open-cycle gas turbines and €500/MWh for combined-cycle gas turbines.

The wholesale electricity spot market in the European Union serves as the benchmark for most electricity supply contracts, driving prices up for all consumers. The price is determined by the costliest generator required to meet demand at any given moment. Due to the substantial increases in natural gas and coal prices in 2021-2022, consumers in the wholesale market, including retailers and large companies without fixed-contract energy portfolios or strong hedging positions, had to purchase electricity at rates up to 15-20 times higher than the averages of the period between 2015 and 2020.

To counter these challenges, the European Union added nearly 90 GW of solar PV and wind capacity in 2021 and 2022. This additional capacity displaced almost 10% of hard coal and natural gas generation, effectively driving out the most expensive power plants from the market and reducing prices for all consumers. It is projected that an additional 60 GW of solar PV and wind capacity will come online in 2023, further increasing displacement to nearly 20% this year.

By analysing the relationship between hourly generation from hard coal and natural gas and wholesale electricity spot prices in several large EU economies in 2021 and 2022, a scenario was modelled to estimate the potential savings with the addition of more wind and solar PV capacity in 2023. The results indicate that without the growth in PV and wind capacity between 2021 and 2023, average wholesale electricity prices would be higher by approximately 3% in 2021, 8% in 2022 and 15% in 2023. This would lead to an overall increase in the cost of electricity supply for the entire European Union, amounting to roughly €100bn.

Notably, the savings achieved through new renewable energy capacity in Spain alone surpass the country's allocated budget of €6.3bn for a European Commission-approved temporary intervention aimed at reducing wholesale electricity prices. Similarly, the savings derived from Germany's new renewable generation capacity would cover the government's recent proposal to support electricity prices for energy-intensive industries until 2030.

The acceleration of renewable energy deployment since 2021 has provided a cost-effective solution to the economic challenges posed by the energy crisis. Long-term contracts secured through policy mechanisms and regulations ensure stable prices for most wind and solar PV power generators in Europe, shielding them from volatile electricity prices. These measures also help protect consumers from rising electricity costs.

“The total investment cost of deploying PV and wind capacity over 2021-2023 is expected to amount to about €200bn. Almost 50% of this investment cost will likely be returned in the form of savings on power consumers’ bills by as early as the end of 2023, while these power plants will continue to provide benefits for the next 20-25 years,” the IEA said.  

According to the IEA accelerated case forecast, savings could have been about 15% higher if EU capacity had been increased more rapidly, through quicker implementation of policies supporting the deployment of technologies with short lead times (i.e. distributed solar PV) and a reduction in red tape for projects at the advanced stages of permitting.